Each earnings season, most publicly traded companies will report results that beat analysts’ consensus estimates for sales and earnings. Positive “surprises” are set up and expected, with a typical “beat rate” of 70% or so.
Investors can take a single quarter’s earnings surprise with a grain of salt, especially if the results are only slightly ahead of expectations. But this doesn’t mean you should ignore the estimates. Over long periods, a pattern of rising estimates tends to drive stock prices higher. And the reverse can be correlated with price declines.
Before diving into the consumer-discretionary sector of the S&P 500 , let’s take a look at how the 11 sectors in the benchmark index have performed this year, and at their forward price-to-earnings ratios, based on weighted consensus estimates among analysts polled by FactSet:
| Sector | 2023 return | 2022 return | Return since end of 2021 | Forward P/E | Current P/E to 5-year average | Current P/E to 10-year average | Current P/E to 15-year average |
| Information technology | 50% | -28% | 8% | 26.0 | 116% | 139% | 156% |
| Communication services | 49% | -40% | -11% | 16.6 | 87% | 88% | 95% |
| Consumer discretionary | 33% | -37% | -16% | 24.1 | 79% | 95% | 109% |
| S&P 500 | 19% | -18% | -3% | 18.3 | 96% | 103% | 114% |
| Industrials | 8% | -5% | 2% | 17.6 | 89% | 97% | 106% |
| Materials | 4% | -12% | -9% | 17.2 | 101% | 104% | 112% |
| Financials | 2% | -11% | -8% | 13.1 | 89% | 93% | 98% |
| Real estate | 0% | -26% | -26% | 15.4 | 78% | 82% | 82% |
| Energy | -1% | 66% | 64% | 10.7 | 96% | 57% | 66% |
| Consumer staples | -3% | -1% | -4% | 18.8 | 94% | 97% | 106% |
| Healthcare | -5% | -2% | -7% | 17.0 | 103% | 104% | 115% |
| Utilities | -10% | 2% | -9% | 15.0 | 82% | 86% | 95% |
| Source: FactSet | |||||||
The consumer-discretionary sector has been the third-best performer in the S&P 500 this year, and its forward price-to-earnings ratio is second highest. This reflects the weighting to market capitalization, with Amazon.com Inc. AMZN making up 31% of the sector’s market cap, according to FactSet, while its stock trades at a forward P/E of 42.3. The second-largest company in the consumer-discretionary sector is Tesla Inc. TSLA. It makes up 15% of the sector’s market cap and trades at a forward P/E of 62.2.
And Tesla provides a good example of how analysts’ estimates reflect changing market conditions or a change in a company’s strategy, and how they can correlate to the movement of its stock price.
Here’s a year-to-date chart showing the movement of Tesla’s stock price:
Tesla’s stock has risen 93% this year through Tuesday’s close at $237.41, but it has declined 24% from its 2023 closing high of $293.34 on July 18.
What may have helped to drive that share-price decline is Tesla’s multiple rounds of price cuts on its electric vehicles amid weakening demand across the EV industry.
The consensus estimate for Tesla’s 2024 sales is down 8% since the end of June to $119,471, while the consensus 2024 earnings-per-share estimate has fallen 19% to $3.92. This shows how the company’s profit margins can deteriorate.
Screening the S&P 500 consumer-discretionary sector
There are 53 companies in the S&P 500 consumer-discretionary sector. Below we will screen the sector to highlight companies expected to increase sales most rapidly through 2025, using calendar-year estimates, as some companies have fiscal years that don’t match the calendar.
But first let’s continue the Tesla theme to show which companies have had their consensus revenue or earnings per share rise or fall by double-digit percentages since the end of June.
The list is sorted by changes in sales estimates, in descending order:
| Company | Ticker | Change in 2024 sales estimate since June 30 | Change in 2024 EPS estimate since June 30 | Total return since June 30 |
| D.R. Horton Inc. | DHI | 12% | 22% | 6% |
| PulteGroup Inc. | PHM | 10% | 26% | 13% |
| LKQ Corp. | LKQ | 10% | -4% | -20% |
| Royal Caribbean Group | RCL | 6% | 28% | -1% |
| Amazon.com Inc. | AMZN | 2% | 36% | 12% |
| Norwegian Cruise Line Holdings Ltd. | NCLH | 1% | -18% | -36% |
| Wynn Resorts Ltd. | WYNN | 0% | 11% | -17% |
| Whirlpool Corp. | WHR | -1% | -10% | -23% |
| Caesars Entertainment Inc. | CZR | -2% | -45% | -11% |
| Mohawk Industries Inc. | MHK | -4% | -12% | -16% |
| Etsy Inc. | ETSY | -5% | -10% | -19% |
| Pool Corp. | POOL | -6% | -15% | -6% |
| Tractor Supply Co. | TSCO | -7% | -10% | -6% |
| VF Corp. | VFC | -7% | -22% | -17% |
| Tesla Inc. | TSLA | -8% | -19% | -9% |
| Hasbro Inc. | HAS | -13% | -21% | -28% |
| BorgWarner Inc. | BWA | -19% | -15% | -22% |
| Source: FactSet | ||||
There is a clear trend for negative performance during this period for companies that have had large cuts to consensus sales or earnings estimates.
At the top of the list are two home builders — D.R. Horton Inc. DHI and PulteGroup Inc. PHM — reflecting the rising demand for new homes, with owners of existing homes reluctant to sell if they have low-rate mortgage loans locked in.
Read: D.R. Horton sees favorable housing demand despite headwinds
Fastest expected sales growth through 2025
Going back to the full list of 53 stocks in the S&P 500 consumer-discretionary sector, here are the 10 companies expected to show the highest compound annual growth rates for sales from calendar 2023 through 2025:
| Company | Ticker | Two-year estimated sales CAGR through 2025 | Estimated sales, 2023 | Estimated sales, 2024 | Estimated sales, 2025 |
| Tesla Inc. | TSLA | 23.6% | $97,574 | $119,471 | $149,063 |
| Lululemon Athletica Inc. | LULU | 13.6% | $9,468 | $10,774 | $12,217 |
| Chipotle Mexican Grill Inc. | CMG | 13.1% | $9,836 | $11,142 | $12,588 |
| Airbnb Inc. Class A | ABNB | 12.0% | $9,857 | $11,004 | $12,356 |
| Amazon.com Inc. | AMZN | 11.8% | $570,560 | $636,944 | $713,481 |
| Las Vegas Sands Corp. | LVS | 11.8% | $10,361 | $12,118 | $12,945 |
| Royal Caribbean Group | RCL | 10.6% | $13,897 | $15,717 | $17,013 |
| Booking Holdings Inc. | BKNG | 10.4% | $21,277 | $23,575 | $25,916 |
| Starbucks Corp. | SBUX | 10.2% | $36,868 | $40,676 | $44,751 |
| Expedia Group Inc. | EXPE | 9.0% | $12,831 | $14,042 | $15,258 |
| Source: FactSet | |||||
Despite the large recent decline in its consensus sales estimate for 2024, Tesla is still expected to show the highest rate of revenue growth in the sector through 2025.
Leaving this list of 10 socks in the same order, here’s a summary of analysts’ opinions:
| Company | Ticker | Share buy ratings | Share neutral ratings | Share sell ratings | Nov. 14 price | Consensus price target | Implied 12-month upside potential |
| Tesla Inc. | TSLA | 45% | 40% | 15% | $237.41 | $239.38 | 1% |
| Lululemon Athletica Inc. | LULU | 76% | 16% | 8% | $430.33 | $442.35 | 3% |
| Chipotle Mexican Grill Inc. | CMG | 74% | 26% | 0% | $2,166.02 | $2,175.87 | 0% |
| Airbnb Inc. Class A | ABNB | 36% | 49% | 15% | $126.68 | $133.65 | 6% |
| Amazon.com Inc. | AMZN | 98% | 2% | 0% | $145.80 | $175.22 | 20% |
| Las Vegas Sands Corp. | LVS | 82% | 18% | 0% | $49.47 | $65.98 | 33% |
| Royal Caribbean Group | RCL | 80% | 20% | 0% | $102.81 | $120.06 | 17% |
| Booking Holdings Inc. | BKNG | 64% | 33% | 3% | $3,173.50 | $3,438.71 | 8% |
| Starbucks Corp. | SBUX | 41% | 59% | 0% | $105.60 | $113.55 | 8% |
| Expedia Group Inc. | EXPE | 50% | 44% | 6% | $122.63 | $127.80 | 4% |
| Source: FactSet | |||||||
Click on the tickers for more about each company, including news coverage, business profiles, financials and estimates.
From the ratings consensus price target, it appears analysts believe Tesla is fairly valued, at least for the next year. Amazon has the highest percentage of buy or equivalent ratings, while Las Vegas Sands Corp. LVS has the most aggressive consensus price target.
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